Poll-time economy to fuel inflation further

The 12th National Parliamentary Election is imminent. The Election Commission has already announced the schedule for next year's election on January 7, 2024. The last date for submission of nomination papers was November 30. Out of 44 registered parties, 30 parties are participating in the elections. A total of 2,741 peoplesubmitted the nomination papers either under political parties or as independents, even though the country's main political opponent BNP and like-minded parties have rejected this election schedule. They are agitating for cancellation of election schedule. They are demanding national elections under a non-partisan government. TheAwami League and the opposition parties are at odds over the election issue. Programmes like hartal-blockade are being observed. All in all, the streets are getting hotter now.

It cannot be denied that political instability affects the country's economy. Our country's economy has recently faced several complex problems. Due to the political instability centering the national elections, the existing problems in the economic sector have become more complex and pronounced. As the government is now busy with the election process, it is not able to pay much attention to solving the economicrisis. As a result, the existing problems are getting more and more complex. A kind of uncertainty and apprehension about the election is looming. The government is not doing much or taking any new initiatives now except casual work. The volume of foreign exchange reserves is decreasing. Meeting the cost of imports is becoming tough. Although Bangladesh Bank is trying to solve the problems but not much success is being achieved.

If we want to clearly identify the economic problems of the country, then we will see that the economy is facing several complex problems at the moment. The first thing to mention is high inflation. After that, the volume of foreign exchange reserves is gradually decreasing, import costs increased and the balance of foreign transactions gradually moved against Bangladesh's favor, etc. Due to disruption of the global supply system and the war in Ukraine, which started before the impact of Covid-19, the prices of various products in the international market have increased abnormally. This affects our domestic economy as well. Even in strong economies like the United States, inflation rose to 9.1 percent at one point, the country's highest rate in 40 years. The Federal Reserve Bank of America (Fed), the central bank of the United States of America, has been able to bring down the rate of inflation to a more bearable level by repeatedly increasing the policy rate and taking other measures.

Bangladesh Bank has taken various measures including increasing the policy rate to control high inflation. But these measures were not very effective. In October, the overall inflation rate of the country was 9.93 percent. Among them, the food inflation rate was 12.50 percent, the highest inflation in Bangladesh in the last 11 years and 9 months. Controlling high inflation has become the most important thing at the moment. Because the common man is in a very disastrous condition due to high inflation. Common people are not able to go to the market and buy the necessary products. People's incomes are not increasing as inflation has increased. Similarly, the election may lead to a large influx of money into the market, further fueling existing high inflation. This will make the problem more complicated. Along with inflation, the inflation of foreign exchange reserves is decreasing. The local currency is also depreciating. It is causing problems in the economy in many ways.

Importers are not able to import essential products due to decrease in foreign exchange reserves. Importing all products are bad but less import of unnecessary and luxury goods is better for the country's economy. But if the import of capital equipment, raw materials and intermediate goods used in industry decreases, it is bound to have an adverse effect on the domestic production system of the country in the future. Ahead of the elections, the government's budget expenditure increased drastically. An increase in government spending on unproductive sectors will have an adverse effect on inflation. The financial base of our country may weaken before the elections. The cost of keeping human genes will increase. But the opportunity to increase the income proportionally will not be created. As a result, the situation can become more complicated. A kind of laxity may occur in all cases centered around elections. Since there is a kind of complication around the national elections, there is a danger of creating a kind of stagnation in every sector of the economy. Local and foreign investors may hesitate to make new investment decisions in this uncertain environment. That is, they will follow the 'go slow' policy.

The internal trade of our country has slowed down a lot. Businesses in both state-owned and private-owned categories may come to a standstill. The biggest concern in the economy is wage dissatisfaction among workers in the garment industry. The government announced a new wage structure for the garment workers but this wage structure did not satisfy them. Again, garment workers can start agitation at any time. Owners are concerned about where the garment workers' discontent will ultimately lead. The United States and the European Union have various questions about the wages of workers working in the garment industry, the right to form trade unions. What the United States and the European Union are saying about labor rights is not only applicable to Bangladesh. They want to ensure these rights for the workers of all countries. They want Bangladesh to implement these conditions for the garment industry. Every organization in our country is deficient in internal governance. Institutional governance may further weaken during poll-time. Everyone will be in a kind of uncertainty before the elections and will try to avoid responsibility. Investors will be looking at the election results. Movement of people and vehicles may be disrupted due to political reasons. In that condition, people's life will not go on normally. Business, trade, education in schools and colleges and other activities are bound to be disrupted. Those doing self-assessment will suffer disproportionately. Their activities may be stopped.

A top leader of a commercial organization says that financial loss of Tk6,000 crore is being incurred every day due to blockade-hartal. It is difficult to quantify the financial loss of a one-day hartal or blockade. However, it cannot be denied that people's lives are disrupted due to strikes. Normal financial activity slows down. Production decreases. The country suffers economically. Daily wage earners are the worst affected. Overall, people's standard of living will decrease.

The Governor of Bangladesh Bank said that there is no reason to worry about foreign exchange reserves. Reserves are at a comfortable level. The Governor of Bangladesh Bank has expressed optimism about foreign exchange reserves. But it cannot be denied that there is some kind of apprehension about the reserves. Effective measures should be taken to bring the apprehensions about foreign exchange reserves to a level of comfort. The balance of current account and financial account is very fragile.

An economy like Bangladesh is less sensitive to interest rates. Majority of the productive activities of our country are carried out in the informal sector. Therefore, the effect of increasing or decreasing the policy interest rate of Bangladesh Bank will not fall much. I think Bangladesh Bank's policy of increasing interest rates will not contribute much effectively to controlling inflation. Although the Bangladesh Bank increased the policy rate several times, the interest rate on bank loans was not completely market-based. It does not seem to be completely possible in our country, as in developed countries, the policy has controlled inflation by increasing the rate. Increasing the supply of goods is now the most important thing to control inflation. Ensuring that the supply chain is not disrupted in any way.

At the same time we have to make every effort to increase production in the domestic sector. Local production should be increased without depleting foreign products. So we need to take effective and planned initiatives to increase domestic production. Efforts should be made to increase the scope of the SME sector. Arrangements should be made so that the entrepreneurs of the SME sector can get loans at low interest rates on easy terms. By increasing production domestically, we must ensure that the goods and services are available to the consumers at a fair price. Care must be taken to ensure that the goods do not fall into the hands of extortionists while coming from the countryside to the city. Business syndicates in the market should be controlled. By that I mean, a producer has to ensure that his product does not face any kind of obstacle in reaching the consumer. The Ministry of Commerce, Ministry of Food and other related ministries and departments have to take and monitor various measures.

Author: Former Governor, Bangladesh Bank and Eminent Economist

Transcribe: M A Khaleque